Calpers takes aim at hospital costs

Debate over state system's threat to exclude 38 from list

SAN FRANCISCO (CBS.MW) -- The California Public Employees' Retirement System's move to eliminate the most expensive hospitals from its health-care network this week signaled renewed fervor in the imbroglio over who should pay for rapidly rising costs.

Calpers swung its considerable weight against high medical costs Wednesday, putting 38 California hospitals on notice to either reduce their fees or face elimination from the plan's largest HMO network. Read the list of hospitals.

The move harkens back to a form of tightly managed cost control that was popular in the early 1990s, and may lead employers to retry similar measures, said Paul Ginsburg, president of the Center for Studying Health System Change.

"This is a striking thing because throughout the country, reaction to rising premiums has been to do more patient cost-sharing," Ginsburg said. "Calpers' willingness to restrict provider choice as an alternative to cost-sharing could lead to employers taking that same route."

The nation's largest pension fund said removing the hospitals would save up to $36 million next year and $50 million a year thereafter, but it left the door open in the next 30 days for the targeted hospitals to agree to prices at the statewide average. Sutter Health accounted for 13 of the excluded hospitals, Sharp and Catholic Healthcare West each had five, Daughters of Charity had three and Tenet Healthcare
THC, +0.10%
had two.

"This is unprecedented for us to narrow the network," Calpers spokesman Clark McKinley said. "We are working in partnership with Blue Shield, not as an adversary, to address these major cost drivers in health care and the price escalation. That means inserting ourselves in their dealings with providers."

Though managed care suffered a backlash when people rebelled against having to get referrals and go through gatekeepers, the health-care system hasn't done much lately to appease consumers who prefer to give up some choice in exchange for lower copayments and fewer cost-sharing arrangements, Ginsburg said.

Calpers' move may swing the pendulum back toward more tightly managed care, he said. "It's a judgment that their enrollees would rather save the money by having somewhat of a restriction on provider choice than by paying more out of pocket."

Calpers offers health care to 1.2 million state and public employees, retirees and their families, and premiums have risen more than 50 percent in the last three years, McKinley said. Three out of four enrollees are in HMOs compared with 25 percent who have preferred provider plans, or PPOs.

The fund is concerned that some members who can no longer afford to pay their premium may join the growing ranks of the uninsured, he said. About 7 million Californians -- or one in five -- don't have health insurance. The number nationwide is more than 43 million.

Calpers, known as a trendsetter in issues of corporate accountability, has narrowed its network in other ways as well. It reduced its HMO provider to one, Blue Shield, from 14 choices in 2000, McKinley said.

"We are very disappointed in Calpers' decision," Emerson said. "We believe it sets a dangerous precedent because it's essentially saying that purchasers of health care can cherry-pick which health-care services they're willing to pay for and which they're not. The basis of our health-care system is we all pay and all have access to services when we need them."

Calpers is addressing the symptoms of cost increases, not the cause, she said. Unfunded state mandates such as new nurse-to-patient staffing requirements and major earthquake retrofitting construction to be done by 2008 tack on costs that get passed on to purchasers, Emerson said.

"If no one's willing to pay for services like (those for) high-risk newborns and transplants, there's no law saying hospitals have to provide those services," she said. "Access to care might be jeopardized and I don't think that's what anyone wants."

"This is as much about union agendas as it is about anything," Emerson added.

Calpers oversees assets of $157.7 billion. It is the third largest purchaser of worker health benefits in the nation and the biggest in California.

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